This paper contributes to the debate on the determinants of business failure and helps to clarify the effect of internal innovation efforts and external knowledge sources in a hazard model of firm exit. Using panel data of manufacturing and service firms in Spain for the period 2009–۲۰۱۵, our findings show that the financial crisis increased the probability of business failure; however, firms with high levels of R&D human capital are better positioned to survive under uncertain financial conditions. In addition, we find evidence that cooperation with vertical partners reduces the effect of business failure in manufacturing sectors. This study provides new insight into the antecedents of business failure and how firms can match their business capabilities to prevailing economic conditions.

Introduction

The risk of business failure is significant at any stage of business development (for a recent review of the literature on organisational survival and failure refer to Josefy, Harrison, Sirmon, & Carnes, 2017). New ventures are particularly susceptible; according to Bhattacharjee, Higson, Holly, and Kattuman (2009) between 50% to 90% of new businesses fail as a result of micro and macroeconomic factors in the business environment. Failure by insolvency, liquidation or closure refers to the voluntary ‘winding-down’ of a business due to poor performance, which is viewed as an efficient reallocation of resources (Siepel, Cowling, & Coad, 2017). The decision to close down a business is jointly influenced by a variety of factors, including firm characteristics (Colombelli, Krafft, & Quatraro, 2013; Spaliara & Tsoukas, 2013), firm-specific capabilities (Cefis & Marsili, 2012), and macroeconomic conditions (Liu, 2004). Bhattacharjee et al. (2009) state that firms’ exits are deemed to be cyclical in nature. Bankruptcies in particular are often associated with adverse economic conditions, such as the recent financial crisis, and acquisitions are often associated with economic recoveries (Bachmann, Elstner, & Sims, 2013).